Inside the Hedge Fund Club Pitching a New Alzheimer's Drug IPO

The Axovant Sciences IPO, scheduled for this week, is one of those clubby hedge-fund deals which explains why most investors believe Wall Street is an unfair game.

BOSTON (TheStreet) -- The initial public offering for Axovant Sciences, scheduled for this week under the proposed ticker AXON, is one of those clubby hedge-fund deals that explains why most investors believe Wall Street is an unfair game.

It's also hard to imagine the Axovant IPO working without help from a raging biotech bull market. Investors seem content to buy just about anything and worry about the risk or consequences later.

Let me try to explain how this deal is going down from the company's regulatory filings for the IPO. Healthcare investor Vivek Ramaswamy leaves the hedge fund QVT in May 2014 to form what is essentially a shell company, Roivant Sciences. In October 2014, Roivant spins off a subsidiary Axovant Sciences, which then buys an old, unapproved Alzheimer's drug from GlaxoSmithKline (GSK) for $5 million.

In May, Ramaswamy decides to sell a 20% stake in Axovant to the public, hoping to raise around $170 million while retaining a controlling 80% interest for himself through Roivant Sciences. Last week, the Axovant IPO was upsized to $250 million, which values the company at around $1.3 billion.

You with me so far? Hedge fund guy forms a company and subsidiary to buy an old Alzheimer's drug Glaxo didn't seem to want for $5 million. Six months later and without doing any clinical development at all, hedge fund guy sets terms for IPO of shell subsidiary which values the same old Alzheimer's drug at well over $1 billion.